Defining Actual and Average Costing for Makeable Items
Within an actual or average cost environment, you can calculate the cost of makeable items by running the Transaction Costing process within the Cost Accounting Creation process. To set up product costs:
Verify that the cost structure is defined for the make and buy items. See "Structuring Your Cost Management System."
Verify that you defined cost foundation for manufacturing. See "Defining the Cost Foundation for Makeable Items."
See Understanding the Manufacturing Standard Cost Foundation.
Define the default cost version by cost book.
Establish actual costs for crews.
Check the item default values, including: source code and cost element on the Define Business Unit Item component.
Confirm that items have a bill of material (BOM). If you roll up the costs to a configured item, verify that you have a component list on the production ID.
(Optional) Confirm that the items have an item routing. If you roll up the costs to a configured item, verify that you have an operation list on the production ID.
Once the production ID is closed for accounting, use the Transaction Costing process to calculate the cost for the items.
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Page Name |
Definition Name |
Usage |
|---|---|---|
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CE_SET_BU_DFLT_VER |
Identifies the default cost version that is to be used for each cost book when creating a production ID. Cost versions are defined for the various books for actual costing in manufacturing. Different versions may have different cost rates for different as of dates. |
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CE_CREW_RATE |
Enter the actual labor rate by crew that is to be used by the Transaction Costing process (within the Cost Accounting Creation process) to calculate the actual cost of production IDs by using this labor crew. This page is used if the item's cost profile uses the Actual Time-Crew Rate option for the Labor Cost Method field. |
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Define Business Unit Item - Manufacturing Page |
MFG_ATTRIB |
Select the source code for each item. |
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Define Business Unit Item - General Page |
GEN_ATTRIB_INV |
Enter the cost element for each item. Cost elements are used to categorize the components of an item's cost. For purchased items that are components of a manufactured item, enter a value in the Current Purchase Cost field to ensure that a default price is available for the calculation of the end item. |
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Manufacturing BOMs - Summary Page |
EN_BOM_MAINT |
Verify that a BOM exists for the makeable items. |
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Define Routings - Summary Page |
EN_RTG_SUMMARY |
Verify that a routing exists for the makeable items. |
To use default versions for processing actual costing data, use the Set Default Versions component (CE_SET_BUBOOK_VER2).
Use the Set Default Versions page (CE_SET_BU_DFLT_VER) to identifies the default cost version that is to be used for each cost book when creating a production ID.
Cost versions are defined for the various books for actual costing in manufacturing. Different versions may have different cost rates for different as of dates.
Navigation:
This example illustrates the fields and controls on the Set Default Versions page. You can find definitions for the fields and controls later on this page.
Identifies the default cost version that is to be used for each cost book when creating a production ID. As production IDs are created, the costing process needs to know which cost version to use for the various books for actual and average cost purposes. The Transaction Costing process (within the Cost Accounting Creation process) uses the most current cost version based on the effective date that is entered here compared to the transaction date. Cost versions must be set for all cost books. The cost versions are used for calculating labor, machine, overhead, and by-products. Since each cost book could be on a different planning or budget cycle, the system enables you to have different cost versions (and cost rates) for each book. Cost rates, such as costing conversion rates and costing conversion overhead rates, are defined by a combination of cost type and cost version.
This page is not required for cost books using a frozen standard cost profile because the standard costs do not vary across cost books. The frozen standard costs are calculated and applied to production at the business unit level for all standard cost books that are within the business unit.
To assign actual cost rates to a business unit crew, use the Assign Crew Actual Costs (CE_CREW_ACTCOST) component. Use the Assign Crew Actual Costs component interface to load data into the tables for this component.
Use the Crew Actual Cost page (CE_CREW_RATE) to enter the actual labor rate by crew that is to be used by the Transaction Costing process (within the Cost Accounting Creation process) to calculate the actual cost of production IDs by using this labor crew.
This page is used if the item's cost profile uses the Actual Time-Crew Rate option for the Labor Cost Method field.
Navigation:
This example illustrates the fields and controls on the Crew Actual Cost page. You can find definitions for the fields and controls later on this page.
Enter the actual labor rate by crew that is to be used by the Transaction Costing process (within the Cost Accounting Creation process) to calculate the actual cost of production IDs by using this labor crew. This page is used if the item's cost profile uses the Actual Time-Crew Rate option for the Labor Cost Method field.
These default values are defined for the item and influence the Transaction Costing process within the Cost Accounting Creation process.
Source Codes
The item's source code determines how the item is used for by the Transaction Costing process. You define each item's source code on the Define Business Unit Item - Manufacturing page. Options are:
Field or Control |
Description |
|---|---|
Buy |
This is a purchased item. No lower level costs are calculated; therefore, any BOM or routings that are attached to this item are not used in cost calculations. The Transaction Costing process computes the cost of this item based on putaway costs. Lower-level costs, such as component costs, conversion costs, overhead conversion costs, and additional costs, are not included. |
Expense |
This item is expensed when it is stored in an inventory business unit. You can specify the item on a BOM to call out the material requirement, but the cost is not included in the final cost of the end item. |
Floor Stock |
This item is expensed when it is issued to production. You can specify the item on a BOM to call out the material requirement, but the cost is not included in the final cost of the end item. |
Make |
This is a makeable item; an item that can be produced in PeopleSoft Manufacturing. Make items are assemblies or subassemblies that are manufactured in house, at a subcontractor, or by a combination of both. If a make item has an actual or average cost profile, then the Transaction Costing process calculates the final cost based on component costs, conversion costs, overhead conversion costs, and additional costs. |
Planning |
This is an item that is used only in PeopleSoft Supply Planning. The item is never included in the Transaction Costing process. |
Routing
On the Define Business Unit Item - Manufacturing page you specify which production routing the item uses when the system determines the assembly item's this level labor, material, and overhead costs.
Average Order Quantity
The item's average order quantity indicates the typical batch or lot size that is used to produce this item. You define each item's average order quantity on the Define Business Unit Item - Manufacturing page. This is the quantity that is expected to be produced in one production ID or production schedule based on the BOM.
If a BOM quantity on a bill is greater than one, the component's per assembly quantity is spread over the BOM quantity. For example, Assembly A has a BOM quantity of 100; Component B used on A has a per assembly quantity (QPA, or quantity per assembly) of 1500. Therefore, the use of B for a single A is 15 (1500/100). When entering the QPA, BOM maintenance supports a precision of four places to the right of the decimal. You have the option to define the calculated QPA precision the system maintains when it determines the item's cost. On the Installation Options - Manufacturing page, you select a precision anywhere from 4 to 10 places to the right of the decimal. If the BOM and associated process results in multiple outputs (primary, co-products, and by-products), the BOM quantity must be set to the item's average order quantity.
If you use economic order quantities or average order quantities with setup, fixed run, and postproduction times, the system must prorate the cost of these processes over the order quantity to determine a per unit cost. The system determines per unit setup, fixed run, and postproduction cost by dividing the cost of each process by the average order quantity. Typically, the system calculates this at the operation level, then sums it to provide the total cost.
Cost Elements
The Transaction Costing process within the Cost Accounting Creation process uses cost elements to categorize the components of an item's cost. Cost elements are also used when costing a transaction. Enter the cost element for the item's material costs on the Define Business Unit Item - General page. For both purchased and makeable items, you must enter a cost element in the material cost category.
Used in Manufacturing Check Box
Any item that can have a BOM or routing, or that can be a component on a BOM or component list, or is associated with a production area, or is used on a production ID or production schedule, must be marked as used in Manufacturing. Select this check box on the Item Business Unit Definition - General: Costing page.
The manufacturing bill, engineering bill, or component list determines the structure of the item and therefore the associated lower-level costs.
PeopleSoft Cost Management uses BOM yield or component yield loss to account for the loss of components during the manufacturing process. For costing purposes, the cost of the assembly item can therefore take into account the expected loss of components in production. In this instance, the system inflates the cost of the component by the component's yield.
Transaction costing does not include the cost of floor stock, expensed, subcontract supplied, or nonowned items. Consigned items are included in the item's cost as they are considered owned upon consumption.
If you roll up an assembly item that has no owned components, only nonowned and parts that are supplied by a subcontractor (Subsupply flag is set to Yes), the Transaction Costing process (within the Cost Accounting Creation process) does not calculate any lower-level material costs but still rolls up labor costs for that item.
Note: Subcontractor-supplied or other nonowned items must be designated as consigned to be included in an end item's final cost.
The production routing, engineering routing, or operation list documents the operations that are necessary to assemble the item. In the Transaction Costing process (within the Cost Accounting Creation process), the system considers only the routings or operation lists of those items whose source code you define as make.
When calculating conversion costs for an operation, you must consider the crew size of the operation. For example, if the crew that is assigned to a work center consists of three people, you multiply the labor run cost by three.
As it does with crew size, the system multiplies the machine cost of an operation by the number of machines that are assigned to the work center in which the operation takes place.
When the conversion rate that is associated with the code that is assigned to the operation is expressed in terms of a cost per unit, as opposed to a labor or machine rate per hour, you must specify the corresponding costing time type on the routing or operation list in order for the system to include the cost. For example, if in the conversion code that is associated with the operation, you specify a labor run cost of 1 per unit, there must be a costing labor run time in the routing or operation list in order for the system to include that 1 in the item's cost.
When you specify an operation's costing times and run rates in terms of days, the system factors the rate by the work center's average daily capacity to determine the total number of hours that it requires to complete the operation.